My first 100% automated and 100% accurate workflow, StrategyQuant test case
DISCLAIMER: The presented results below are still preliminary, there is still a small chance that my positive results are influenced by an undiscovered bug in the current version of SQ-X (build 118.84) or that I’ve just made a stupid mistake somewhere in my workflow resulting in a huge ‘Data Mining Bias’. However I did my best and rechecked everything multiple times…Moreover since this all is based on a relatively new ‘custom projects’ feature of SQ-X, nothing of this has been tested yet on a real account…but I think I have built a strong case supporting I could be right on this one 😉
My claim: It looks like I’ve managed to create a 100% automated and 100% accurate workflow using StrategyQuant feature called ‘custom projects’.
100% automated means: I push 1 button before going to bed, and every morning my workflow automatically generates, validates and selects few new strategies which are ‘ready to go’
‘Ready to go’ means: I can deploy them immediately to my live account. Without a need of further processing.
100% accurate means: Every single strategy that has been selected by this automatic workflow (~50 so far), has been profitable in the 2 years period from the generation date.
To test this all I’ve adapted my SFT method as described in this topic: See HERE.
The workflow is based on standard validation test (common knowledge) as shared by SQ team in their free courses, however with a very rigorous settings. The workflow does not use any advanced validation methods like WFA,WFM,OP,SPP. Instead a customized Monte-Carlo test is used to simulate behavior of a SPR method. No portfolio analysis is performed (some systems can be correlated).
My automatic workflow test case is split into two verification moments:
1. End of year 2014.
2. End of year 2016.
At each point in time 1 and 2, I used my workflow to automatically generate and select 20 NEW strategies (out of several hundreds thousands systems) without ANY manual intervention and then ALL of selected systems where forward tested using SFT (future data). Let me be clear on one thing: I did not cherry picked any strategies.
It seams that every single selected strategy was profitable in the period following the selected generation date. See figures blow:
Test case 1: Strategy creation @ 2014.12.31, Simulated Forward test: 2015.01.01…2016.12.31.
Real-Ticks (Dukascopy data), Real-spread (no commissions)
Test case 2: Strategy creation @ 2016.12.31, Simulated Forward test: 2017.01.01…2018.12.31.
Real-Ticks (Dukascopy data), Real-spread (no commissions)
My conclusions so far:
1. If there are no mistakes, then it seems that it is totally possible to use SQ-X automated ‘custom projects’ to automatically generate and select profitable trading systems.
2. No advanced validation/filtering methods needed. Of course these tests should only improve total result and minimize DD on portfolio level.
3. The results in SFT of >2014 are slightly better than >2016. Workflow is somehow sensitive to used data during strategy generation (due to changing market condition). It seems that years 2017 and 2018 are very difficult years for trading using selected trading type.
4. It is not 100% proven yet, but it’s a pretty damn good result so far, taking into account it’s based on a simple workflow that is using basic filtering principles.
5. Some of the strategies can be correlated, but for the sake of this investigation no manual correlation filtering has been performed. This would jeopardise the objectivity of this test case.
6. The filtering settings are very rigorous, this workflow filters out only the most robust strategies. According to my statistics only 0.05% of the generated strategies are able to pass this workflow.
– Refine the workflow and implement further strategy selection, perform correlation tests, WFM analysis and additional portfolio level related tests.
Simulated Forward Test
How to test your strategy development process to see if your are really a profitable system trader?
Hereby I want to propose a validation method called ‘simulated forward test (SFT)‘. (Note: This is not WFA or WFM, WFA/WFM is a different topic, this is also not an additional OOS test as used during strategy generation since the SFT period is not used for strategy selection)
Simulated forward test is basically a ‘walk forward’-like test of your ‘total strategy design workflow/method’.
In the last few months I tried to develop a fully automated workflow using SQ-X ‘custom projects’ module and I got very interesting results (which I will post in another topic). My small breakthrough was based on an observation that majority of traders, and even experienced traders giving online courses, just assume they are right about their strategy validation method based on their experience and their past results. There is nothing wrong with that assumption, but it can be killing for new traders or people who are trying to design their own strategy design methods.
What you normally see is the following development sequence:
1. All traders have their own ideas or methods for generating strategies and they use these methods to generate their new automated trading systems.
2. In 90% of all cases, new traders generate and run their systems on demo (or small live) accounts to see if their strategies are profitable or not.
3. This results in a ‘generate & hope’ methodology.
In my opinion the proper approach should be as follows:
1. At first you need to develop or learn a new strategy design workflow (a new system design method or process including strategy generation/testing/validation and strategy selection).
2. In order to test if your method works you go back in time and pretend to be living in the past, e.g.: 2014. This is your point of reference.
3. Then you develop a sufficient (significant) amount of strategies using your workflow using data <=2014. In this case using data >2014 is forbidden to prevent any type of ‘Data Mining Bias’.
4. Then you test ALL strategies that have passed your workflow and strategy selection on a simulated forward period (your simulated future) >2014 and verify how many of selected strategies have worked for you. You do this without cheating or fooling yourself, so you use ALL strategies that have passed your workflow successfully. You draw your conclusions based several different pass/fail criteria that are important for you e.g.: Max DD, Net Profit, Red/DD, Stagnation etc….and you write down the effectiveness percentage of your workflow e.g: 65% of selected strategies were profitable (or did not exceeded Max. expected DD) in the simulated future.
5. You repeat the whole process by selecting a different point of reference in the past e.g.: 2016. And start all over again by generating, testing and selecting new strategies. Then you test again ALL of the selected strategies in a simulated period >2016.
You can repeat this process many times, by ‘walking forward’ your whole workflow in time using historical data and see if your strategy generation method really produces robust strategies in a simulated forward period.
An example of time slots as used in a typical workflow:
– Point of reference (in the past) = 2014.12.31 (you are forbidden to use data > 2015.01.01 until you have generated 30 strategies that passed your workflow and selection method for live trading, this can be including portfolio building methods)
– Your first IS/OSS for strategy generation is e.g.: IS: 2008.01.01…2011.06.01 and your first OOS is 2011.06.02…2014.12.31.
– Your second OOS2 for cure-fitting check is e.g.: 2003.01.01…2007.12.31
– All other validation tests (spread,skipping trades, MC, cross market etc..) are done using data <=2014.12.31
– You select 30 strategies and test them ALL on data >2015.01.01
After you are confident with your workflow and your results you can jump-back to present time and generate/validate and select new strategies and feel confident that selected systems have a significant chance of being profitable in the upcoming future.
Just wanted to share this because this approach has led to my first small breakthrough with my 100% automated workflow.
Conclusion: stop fooling yourself, stop generating strategies based on untested methods and stop hoping those will work out for you well in the future…
Any comments are welcome 🙂 Visit our forum HERE.
Free StrategyQuant X crash course 2019
When you join our community, you get an illustrated step-by-step guide on how to ‘jump start’ your own strategy generation process.
You will be able to download free strategies generated by other forum members! Including a start-up package with 50 example strategies and 3 strategies which are ready to go.
You get our new SQ-X workflow template that has proven to produce interesting results on EURUSD.
You also get access to additional algo-trading lessons, where you will learn the basics of systematic trading.
So why we do it for free? What’s the catch?
1. Because we are passionate about algorithmic trading.
2. Our mission is to share knowledge and learn from each other.
3. Strategy generation takes time and lots of computing power. With more active forum users and more computers working in parallel we can generate and test more strategies.
To join this free course please subscribe to our free algo-trading forum.
Note: After short registration you will recieve an email with further instructions. Make sure you have received the activation email! Otherwise mail to: info(at)coensio.com.
Will a free trading group help us?
How about we create our own!
many years of EA coding for other traders (also for many of you) I
think, I have seen it ALL. I have seen people creating EA’s and
strategies based only on one chart screenshot or just because they have
read something on a ‘forum’. Obviously it doesn’t work!
Now I’m fully convinced that the only proper way to go is automatic strategy generation and testing.
But this method is also not perfect, it is like trying to find a needle in a haystack. Learning curve takes several weeks, finding robust strategies takes several days, testing takes up to several months.
So why not to combine our efforts?
Here is my idea: I want to create our own private forum, our own trading group where we can share ideas, experiences and knowledge. A real gentleman’s (and ladies) club for serious traders.
YOU CAN JOIN HERE: Coensio’s Algo-Trading Group
I want to concentrate only on automatic strategy generation. This is how ‘they‘ do it. This is how EA vendors find their strategies, this is how professional quants and algo-traders design their strategies.
So if there is any chance you are already using StrategyQuant platform, and you want to join this club, just let me know (reply to this email). I am looking for experienced traders and also for forum moderators.
I’m still learning this platform especially the new ‘SQ X‘ version, so the only thing I can promise you, is that I will share my knowledge for free. Starting from 2019 I will also prepare some kind of free algo-trading course.
For traders which do not know what I am talking about, please read my review of this platform: HERE. I also provide 20% discount + other bonuses for people that want to purchase this platform, but first download a demo version and see if this way of working will work for you.
ATTENTION: If you will use my discount code you will get ArrowHunterEA and CoensioMt4Charts for free: COENSIO-20-OFF-ZSHXY
You can read more on my blog. or join here:
Coensio’s Algo-Trading Group
Free Video course: How to prevent curve-fitting
And how to properly optimize trading systems
is the most common mistake made by inexperienced algo-traders. This is
because the MT4 based optimization is nothing else but pure
Curve-fitting is a fancy name for cherry-picking (or ‘falsely’ connecting the dots), where you optimize your system using all possible combinations of all parameters and you select only the best results, the highest profits or the best looking equity charts.
This topic is so huge I can write a book about it. But let’s keep it very pragmatic for now. Because you are here to see some results. So, without going into details here is the approach that I use to keep cure-fitting minimized:
- Keep the number of optimized parameters as low as possible: each new parameter which is optimized adds an additional degree-of-freedom (or dimension), in which equity graph can be curve-fitted.
- Following the logic of point 1: avoid complex trading systems with many parameters and dependencies. Keep it simple!
- Split your historical data range in: ‘in-sample’ and ‘out-off-sample’ periods: the in-sample period is the longest period where you run your optimization. The out-of-sample period is the period where you will validate your settings after the optimization.
- Make sure you have sufficient amount of historical data. Note that you need at least 100 trades in your in-sample period, which is minimum required amount of trades needed for statistical significance. More is better.
- Optimize for profit-growth stability not for the maximum profit. In the end you need to see a straight equity line with stable increase over the whole testing period. (During optimization the ArrowHunterEa returns a custom ‘profit-factor’ in OnTester results column, which determines the stability of growth)
- Perform a robustness test on optimized parameter set. This can be done by manual ‘monte-carlo’ like simulation using the MT4 tester.
know it is a lot of info in one post. That is why I have prepared a
free video course for you with an real life example of strategy
Altcoin maximum price calculator
This tool calculates the maximum theoretical price estimation for monero coin, with an assumption it will reach the same
marketcap as Bitcoin with a similar supply level. The equation is:
MaxPrice(monero) = MarketCap(BTC) / (SupplyLevel(BTC) * MaxSupply(monero))
Note1: if "Supply" is equal to "MaxSupply" like for monero coin, then SupplyLevel(BTC) is set to 1
Note2: if "Supply" > "SupplyLevel(BTC)", then SupplyLevel(BTC)* MaxSupply(monero) = "Supply"
Usage: https://www.coensio.com/wp/altcoin-price-calculator/?ticker=TICKER, or click one of the tickers below:
GROWTH POTENTIAL (ROI) RANKING TABLE TOP 200:
Data source: coinmarketcap.com
The best crypto exchange
(Europe-based, trusted cryptocurrency market)
(Europe-based, trusted cryptocurrency market)
Step 1: Create your free account
Go to LiteBit.eu website and click “Create new account”:
Fill your personal information:
Complete your registration by clicking activation link in your email box:
Note: In some cases before purchasing your first crypto–coins you need to complete at least “Tier 1”, verification. During “Tier 1” verification the system will send you a SMS with a short code you need to enter in order to proceed with purchasing crypto’s. You can complete “Tier 1” step, under “My account > Verification & Limits” page. Click here for direct link.
Step 2: Getting a free cryptocoin wallet
A “wallet” is a tool which is connected to an online decentralized ledger (database) and it is used to store, send, or receive digital currency. The safest option is to get an offline wallet for each given currency type. However this requires installing many tools (since each cryptocurrency has its own wallet software) and storing information on external USB drive. The easy way is to use free online wallet inside your LiteBit.eu account. Go to “My Wallet” tab and click on “Deposit” button for selected cryptocoin.
After that you need to hit “generate” button in order to generate a new wallet address for selected currency. Note: in all cases you can always transfer your funds from
LiteBit.eu account to your offline wallet or a wallet software installed on your PC.
Step 3: Purchasing your cryptocoins
To purchase any desired cryptocoin just go click on currency symbol in the main window, for this example: XRP icon:
Then fill in the required information like: amount of coins to buy, your payment method, your wallet address and hit “Next”.
Note: Do not forget to check the “I agree” checkbox.
After that you can proceed with your usual payment routine:
Step 4: Checking transaction status
To check if your transaction is finished, you can go to “My account > Order History”:
Note: Depending on the crypto currency it can take few minutes to few hours to complete the transaction! Remember that each transaction need to be confirmed by crypto currency “miners” and it can take some time.
The LiteBit.eu is an easy, fast and reliable currency exchange market. It is based in europe which gives another level of confidence when compared to Asian based exchanges. I hope this guide will help you buy you first cryptocurrency without any problems.
P.S.: if you want to thank me by sending me 1 ripple ($0.20), my ripple address is:
How to backtest & optimize in MT4
Just like me, many of you are using the MetaTrader platform for daily trading using Experts Advisors. However, not many people know how to backtest in MT4 properly. In this short blog I will try to explain you the logic behind the EA optimization process on a MetaTrader 4 or 5 platform. If you do not know how to run the strategy tester on your MT4 platform then there are many places to go like YouTube to learn from. This article explains only the optimizing steps needed to get the best results during the optimization.
So here we go:
- How to approach mt4 strategy tester optimization
- Is 99% tick data accuracy one big lie?
- What level of tick data accuracy is needed for backtesting?
- Putting it all together
Now imagine today is the point where we have drawn a red vertical line. Of course we can not predict the future and the only thing that we can see are the backtested results from the past. So how can we make sure the optimized EA results are not curve-fitted and the optimized EA parameters have any chances of being profitable in the future? Let’s split our optimization process in two steps.
Optimize a given trading strategy on a small historical data fragment, from a given date in the past (Start) until today (End). It is extremely important that the number of trades in the selected period is representative for the given trading system. You need to optimize using at least 10% of the total number of trades which have occurred within history data range.
Test if the optimized parameters found in STEP 1 are not curve-fitted! Yes, this is my big secret magic trick, that I use in my all trading systems, so read and think about the following sentence for a while, let it sink in:
Basically, if I see nice results on a backtest using history data which was never used during the optimization (so called out-of-sample period), then it gives me confidence, that selected set of parameters could also be profitable in the feature.
modelling quality! I was obsessed by tick data accuracy. I spent hundreds of dollars on tools which gave me 99% accurate tick data….but then I’ve discovered the following:
The 99% accuracy visible after a backtest is just a number in the FXT file header!
And moreover what does it mean to have 99% of accuracy? The answer is: it doesn’t mean anything! It is just representation of tick modeling quality for the broker where the tick data comes from and in almost all cases it is Ducascopy tick data. Furthermore in most cases people will use different broker with different tick prices, spread, latency etc…So 99% backtest data modeling is a myth, but 99% data is not entirely useless, read the flowing point.
- You are using MT5 platform and run your optimization using: “Every tick based on real ticks” mode. (Even then, most brokers provide slightly “adjusted” tick data, so no, they will not let you win that easy, hehe)
- Your broker will provide you the real recorded tickdata from a live account. (It does not happen a lot)
- You know how to record live tick data by your self and know how to export it to strategy tester. (Too difficult for most people)
In order to test your historical data for accuracy just run the following simple test:
- Run your (or any other) EA on a live account on a selected broker. To minimize the potential losses minimize the lotsizes of open positions.
- Collect the live trading results for at least few days (or even weeks) in order to capture different market moods and events.
- After that, backtest the same EA using exactly the same EA settings and using the same time period! (In this step you can use 99% modeling or the tick data you currently have)
- See how big are the differences in trading results between live and backtested data.
- If the difference in all critical parameters such as: number of trades (very important), drawdown and profit etc..are not that big, then your history tick data is sufficient to be used in optimization and backtesting. If the differences are significant, then you need to test it on a different broker or using different source of tick data.
- Your EA settings are not curve fitted
- Trading results are also profitable outside your optimization period (in the past or the future)
- There is a good correlation between results from backtesting and optimization and the your live account
P.S.: do not forget to like or share this article!
How to trade news
As you probably already know, there are many successful traders that trade on forex news from fundamental point of view. However, most of the traders get the concept of ‘news trading’ totally wrong and lose their money time after time. This is because they base their trading decision only on the fundamental market laws and fundamental analysis.
My statement: Trading by blindly following fundamental analysis is totally wrong!
In this article I will show you:
- Why fundamental analysis does not work like people think it should work
- How to trade news properly
- How to automatically disable EA’s during major high impact news event
So let’s look at a real life example on what market does when FED announces a rate hike. For this example let’s look at the FOMC (Federal Open Market Committee) that took place on 15 March 2017 (Ms. Janet Yellen in the figure above). I have selected this example because March 15 was a very interesting day for a currency trader (but also for me personally). Below a screenshot from ForexFactory calendar:
On that day, during a press conference at 8pm (CET time) the FOMC announced a new rate hike. The basic laws of economics say:
“When US interest rate goes up = dollar should go up = EUR/USD should go down”
So let’s look at the EUR/USD chart on that day in the evening:
And the EUR/USD went up?? I guess many traders who were hoping to get few pips of profit on a stronger dollar were quite surprised 😉 So what happened here? Apparently the market did not read the book called: “basic economics” and the EUR/USD pair went up instead of down?
And this is where the most traders are losing their money. Because one thing that most traders do not know, is that there is a huge difference between ‘expected news‘ and ‘unexpected news‘ events! When analyzing the EUR/USD price movement on that evening, we can see that two different news events happened almost simultaneously:
A. Expected news: (News with already expected outcome) FED raised the US dollar interest rate during the FOMC meeting. This was ‘expected news’, because long before this news event, in previous weeks and days, there were many market rumors, that Ms. Janet Yellen from FED will finally announce another ‘rate hike’ during her next presentation. And the most of analysts gave up to 80% of probability of rate hike long before the FOMC meeting took place. Basically this interest rate raise was already ‘priced in’ by the market and all smart traders long before the news event on March 15.
B. Unexpected news: (News with unexpected outcome) On the other continent (in Europe), Dutch parliament election were taking place (in The Netherlands). And there was a big element of surprise related to that event, because nobody knew if Dutch populist party PVV would win or lose those elections. In case of winning this would be a very negative signal for Euro-zone and Euro would drop very hard. However it turned well for all of us (especially me since I am an emigrant living in The Netherlands) and the populist party PVV did not win those elections! On that day I was watching the Dutch television with my laptop on my lap and just in few seconds after first official exit-poll was announced the Euro went up like crazy!
Very important note: in most cases the ‘unexpected news‘ is not a direct ’cause’ of the market move, but rather just a catalyst of market forces that were already in place. Secondly, the only thing, we can relay on is the correlation between the ‘news’ and the ‘move’! The market moves only when the ‘news’ is supported by market sentiment (the collective herd behavior of all market participants). This is the most important sentence on this whole page. Please try to understand this, and you will become much better trader. So, in the example above, the EUR/USD went up, because the unexpected and positive news was supported by the overall bullish bias for the euro. This market behavior is can be explained by the concept called ‘teflon euro‘ (just google for it), which means that in most cases, the market will use any valid excuse (any positive news) to buy euro.
2. How to trade the market news?
Strategy A: scalping the market directly after the news:
One way to trade the news, is to trade only on ‘unexpected news’ (news with an unexpected outcome) and to enter the market very fast! In most cases the first reaction to the news comes just in minutes/seconds after the news release. After few minutes you are already too late to scalp the market and there is a big risk of pull-back since people will take their profits after just few pips of gain. In order to be very fast you need to have access to real-time information. One platform I can recommend is RANsquawk forex news service. This service provides real-time ‘no lag’ information updates, so you can trade all news without any delays and never miss any trading opportunity. If you want to read more about this service read more here: RANsquawk
Strategy B: Trading the correlations between the news and market moves:
This is my favorite news trading strategy, since it is easy, clear and effective way for trading the news. In this strategy you can trade the news in direction dictated by the prediction which is based on the previous news releases and previous market moves. So for example when a given forex pair move (after a news release with a given outcome) was the same or similar for all previous 10 news events, then you have an increased chance that it will happen again! Here is how it can be done:
Step 1: Find a high impact news event
In order to find all high impact news events, you can go to free ForexFactory calendar and select only red flagged news. Then select any news event you want to trade o
In this example let’s select ‘Michigan Customer Sentiment = UoM’ as our target.
Step 2: Find a correlation between the news and market move
This steps requires an external tool (see automatic selection below) or some data mining skills (manual selection).
Manual selection: For example you can use forex calendar filtering option to filter out only the selected news event for the past 12 months. Then you need to open a chart (on your MT4 platform) of the related currency (currency pairs) and mark all dates where this particular news event has happened. Then you need to seek for market reaction correlations by looking in which direction market has moved directly and within few hours after the news release.
Automatic selection: There are many tools that do this work for you. I’m using the “events & trade” portal which is available on my broker: markets.com. Here is how it looks like:
This simple web portal not only tells you what are the best upcoming news trading opportunities, but it also analyses up to 12 previous outcomes and it calculates probability of profitable trading in direction dictated by the news. You can read more about this tool here: Visit “events & trade” website.
For this example we will target USDCAD pair which has a 80% probability (for a profitable trade) in case when the ‘Actual’ value provided during the news will be higher than the ‘Consensus’ (the forecast) value. See figure below:
Step 3: Setup your trade and wait for the news.
So in this example we can tell upfront that when the ‘UoM Consumer Sentiment’ news will result in a ‘Actual value > Consensus’, then we have a big chance that USD/CAD pair will move in the ‘BUY’ direction within 4h and 12h time-frames. Lets see what happened in this case:
In this case the outcome from news was positive, since 98.0 > 97.1. Let’s see what was th reaction on USD/CAD on this positive news:
So in this case the price moved as predicted, this would result in a profitable trade!
If you would like to avoid trading during the news releases and avoid fast market moves, you can look at my EaBlocker indicator. I have created a simple indicator that allows you to automatically disable AutoTrading during given hours and also on major market news releases.
You can read more about it on the product page: HERE.
– To summarize we can say that forex market (like any other market) is driven by not more than three factors:
- Long term forces dependent on global fundamental view (e.g: policy of central banks)
- Short term rallies on unexpected news events (e.g: Geo-political events)
- Market sentiment (I will discuss this in one of my next posts)
– For successful trading during news events you can use one of the following strategies:
- Fast market scalping directly after news release See RANsquawk website.
- Trading long term news to market response based on previous news to price moves correlations See “events & trade” website.
– If you want to avoid trading during news, you can use my EaBlocker indicator.
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Stocks to buy now!
||Microsoft Corp||MSFT||Strong Buy||See TipRanks|
|8||Micron||MU||Strong Buy||See TipRanks|
|7||Advanced Micro Devices||AMD
||Moderate Buy||See TipRanks|
||Strong Buy||See TipRanks|
|8||FB||Strong Buy||See TipRanks|
|8||Bank Of America
||BAC||Moderate Buy||See TipRanks|
On this blog I will share with you every single step I take while selecting only the good stocks to buy. Note that ‘buy’ is the main keyword here since this strategy covers only the good stocks that are worth buying and the companies that are worth investing in.
Here is how to find the best stocks to purchase today
To find the best performing stocks right now, you need to learn the following:
It is very simple. There are three main reasons why it is better to be bullish about stock market then to look for selling opportunities (and go ‘short’):
- Looking at the past performance of stock indices like S&P500, Nasdaq or Dow Jones, you can easily see that when looking at the long term period the stock prices are ‘continuously’ rising. The current bull market conditions is 8years old (anno. 2017). Of course this is true for periods ‘out side’ big depressions and markets crashes, which also happen periodically.
- The second reason is that the technology and world wide economy are growing in an accelerating way. And it is much more ‘comfortable’ to think that the best companies like: Google, Amazon or Microsoft will continue to grow in the long term.
- You can enjoy yearly dividend payouts! The majority of the best performing stocks pay out a nice yearly dividend up to 4%!
While looking for the best stocks, you can get lost in the amount of the provided information. There are so many websites, paid portals, blogs, smartphone apps..it is hard to say which source is worth to follow and which is pure garbage. So let’s say that I have already been in this situation and I’ve already prepared a list of best places you can go to learn about the best stocks to buy. So below is my top 3:
Those three websites will give you access to the best quality stock market investing ideas and the best stock picks you can get for free. Those investing recommendations are provided by the professional hedge funds managers, Wall Street analysts and also financial bloggers. Now the ‘only’ thing you need to do is to select few high quality companies to invest in;) Reading all those articles will give you a good idea about what are the best performing companies and what stocks you should avoid buying.
So the biggest problem is that most people will get lost in the huge amount of the provided information. Since it is impossible and very unwise to follow every single stock recommendation, we need to do our own post-analysis and see what stocks are really worth buying. See next point.
- The overall fundamental picture of market mood and future opportunities
- P/E ratio
- Pervious earnings (previous performance) and earnings estimations
- Stock price trends and sentiments (on chart technical analysis)
All experienced traders say: “in order to be successful in trading you need to become one with the market”. This basically means that you need to be fully ‘synchronized’ with the market events and market moods = you need to be 100% up to date. Note that there are two things you need to master in your trading: Fundamental Analysis and Market Sentiments (based on technical analysis). Those two, are the most powerful tools you can use while forecasting the next market movement. You need to learn how to do your own analysis or know where to go to find this information. Lucky for us, there are many places on the net that are providing a full day by day market coverage, my favorite two are:
Price to Earnings (per share) ratio is the most basic measure that can tell you if a given stock is cheap or expensive at a given price.
P/E= Market Value per Share / Earnings per Share
There are many places, books and online video’s that are explaining this concept (click here). If you want to know how to select best stocks to buy you need to learn about the basic concept behind P/E figure and how it can affect buying decision. The ‘rule of thumb’ says that a stock with a lower value of P/E is considered ‘cheaper’ than one with a high P/E figure. Just google it if you want to learn more.
Previous earnings and earnings estimations:
Earnings estimations for a given company can be also a very powerful tool you can use to predict the next stock price movement. Previous earnings can tell you if a given company is doing OK or not so well. My personal recommendation is to always invest your money into companies that show a stable grow in quarterly earnings and gross profit. You can go to yahoo finance website to see the previous earning numbers and also estimated figures. Below an example of Amazon stock:
The second way to tell given stock is worth buying, is to look on earnings estimation numbers:
When estimated number is much lower than actual or previous number, there is a chance the stock price will drop during or even few weeks before the earnings date (the date when companies release their earnings numbers). The rule of thumb tells us: “buy the rumor, sell the news”. In practice it means that if you expect good earnings numbers of given company you should buy the stock far before the official earnings date.
Stock price trends and sentiments:
There is one important thing you should know when trading stocks, forex or commodities: fundamental analysis (predictions done by professional market analysts) does not work 100% of time, it works only when market is in a trend. There are many, many reasons for that, but the most important one is that the price movement forecast is always lagging behind the market sentiment. Quote from Seeking Alpha article:
So in order to become successful trader you need to learn how to recognize when fundamental analysis aligns with a market trend or sentiment. The good start would be to master the basics of ‘Elliot wave‘ theory.
4. How to find great stocks just in 5 minutes each day
I can imagine that stock trading can be a little bit overwhelming for a beginner. Or that there are many people with full-time job and families with small kids, that do not have time for continuous reading, watching market news and doing market analysis. Therefore I have personally selected two options that you can use for your daily trading, when your trading time is very limited:
TipRanks search result looks like:
For each single stock you a considering to buy this great tool can tell you the following:
- The current ‘buy/sell or hold’ recommendation of the best market analysts
- The mid/long term price range prediction
- The insider buy/sell actions (extremely strong buy or sell signals)
- Financial bloggers recommendations
- The current recommendation of all experts who have already successfully predicted price movement in the past for a given stock
- Currently trending stocks
- Many many more….